April 2007 Newsletter
LEYDIG, VOIT & MAYER, LTD. REPORT
Volume 8 Issue 2
Supreme Court ruling opens doors for declaratory judgments
Asserting that lower-court precedent conflicted with its own prior decisions, the U.S. Supreme Court ruled in MedImmune v. Genentech that patent licensees may seek declaratory judgments that a licensed patent is not infringed, is invalid and/or is unenforceable without first breaching the terms of the license agreement.
MedImmune, a small biotech firm, entered into an agreement with Genentech to license a patent and a pending patent application. MedImmune agreed to pay royalties based on sales of a drug used to prevent respiratory tract disease in children.
Several years later, the patent application matured into a patent. Soon thereafter, Genentech advised MedImmune that its drug was covered by the patent, and that MedImmune should begin to pay royalties under this new patent. If it did not make these payments, MedImmune believed that Genentech intended to enforce its patent, terminate the license agreement, and sue for infringement. Because 80 percent of MedImmune’s revenue was attributable to this single drug, the company was unwilling to risk the consequences of non-payment, and began paying the royalties.
At the same time, however, MedImmune believed the patent was invalid and unenforceable, and that its drug did not infringe the patent. In a move contrary to then-existing Federal Circuit precedent, MedImmune opted to challenge the patent while continuing to pay royalties to use it.
The district court dismissed the declaratory judgment suit brought by MedImmune due to a lack of case or controversy. According to the district court, MedImmune’s payments under the license “obliterated” any “reasonable apprehension of suit,” which was the standard established by the Federal Circuit. Not surprisingly, the Federal Circuit upheld the lower court’s decision.
The Supreme Court, however, did not. Instead, the higher court cited its own 60-year-old precedent and ruled that a breach of a license agreement arising from, for example, a failure to pay royalties, is not a prerequisite for a licensee to seek adjudication of patent disputes.
“The Federal Circuit has required a licensee to establish a reasonable apprehension of imminent suit before allowing declaratory judgment actions to go forward,” says Chris Griffith, a member in LVM’s Chicago office. “A licensee commonly established this by breaching the license — for example, by refusing to pay royalties. This case changes the landscape.”
The ruling may be of particular interest to generic drug manufacturers who file Paragraph IV patent challenges. In the past, many who have filed Paragraph IV certifications against Orange Book patents, but have not been sued by the patentee, have unsuccessfully attempted to bring declaratory judgment lawsuits in an effort to clarify their rights under those listed patents.
“There was a legislative change in 2003 that appeared to allow such actions, but the courts uniformly dismissed them for lack of case or controversy,” says Bob Green, a member in LVM’s Chicago office. “Now it should be possible to go forward.”
The decision raises a couple of questions, however, Griffith and Green note. “This could alter the manner in which companies approach litigation settlements. In the past, license agreements were used to provide finality to a dispute. Allowing a licensee to challenge licensed patents without breaching the license agreement brings a new consideration into the settlement equation: Will the license truly bring finality to the dispute?” Griffith notes.
Adds Green: “We don’t know whether the Federal Circuit will attempt to recapture in future decisions some aspects of the old rule. In any event, the full implications of MedImmune are unlikely to become evident for some time, but it will absolutely change the way in which companies view license agreements.”
Used properly, TROs protect trade secrets
Trade secret protections range from state trade secret statutes to corporate non-disclosure agreements, but they are not always enough to deter an employee from misappropriating information when he or she leaves a company.
“If an employee accesses information on a computer without authorization, in addition to trade secret protections there are a host of federal computer-based protections,” says Eley Thompson, a member in LVM’s Chicago office. “And on that basis, you may be able to get a temporary restraining order (TRO) from a federal court that immediately prevents the employee from using the misappropriated information.”
TROs are not appropriate remedies in every situation, but they can be valuable options for companies that can demonstrate that immediate harm is likely or that any subsequent remedy would be inadequate to remedy the harm being done.
“In a recent case, we obtained a TRO to stop the activities of a departed employee by demonstrating that the technology at issue would be proliferated so quickly it would be impossible to get it all back,” says Michael Hartmann, a member of LVM’s Chicago office. “The court ordered return of the information and confiscated the computer to which the information was downloaded. The mere risk of wrongful use is enough, but you need solid facts going in.”
As a best practice, companies should get the facts whenever an employee leaves, Thompson and Hartmann agree.
“When employees give notice that they’re leaving, the company should look to see what they’ve been doing,” says Thompson. “That should be routine for anyone with access to sensitive information.”
Adds Hartmann, “An executive vice president may have every reason and right to download information to work at home, but someone who downloads information at midnight the night before resigning, or who downloads information that has nothing to do with his current job but everything to do with his new position, requires a closer look.”
Getting that look can be relatively easy with security software that routinely monitors access to sensitive parts of the computer system. When an employee leaves, such software can reconstruct what information he or she accessed and when. If the information is sensitive and the employee was not authorized to obtain it, the forensic evidence and the fact of the employee’s new position may be enough to obtain a TRO — and to avoid full litigation.
“You must act quickly, and TROs are good only for 10 days, but they also usually make for rapid resolution,” says Hartmann. “People realize they’ve been caught red-handed, and they’re eager to settle as quickly as possible.”
Additionally, Thompson says, companies that routinely monitor departing employees’ activities and seek TROs when appropriate discourage other employees from similar transgressions.
“You could wait to see if something bad happens, but if it does you’re going to have to unwind it,” he says. “This is one situation where using a proactive approach with TROs can save a lot of money and headaches. It’s a practice that every company with trade secrets should consider.”
Generic biologics attract attention in Congress
The debate over generic biologic drug products has reached a new level with the recent introduction of new legislation in both houses of Congress.
Identical bills — S. 623, introduced by U.S. Sen. Charles Schumer of New York and H.R. 1038, introduced by U.S. Rep. Henry Waxman of California — would allow the Food and Drug Administration (FDA) to approve follow-on (generic) biologic drugs. Used to treat conditions such as arthritis and ulcerative colitis, biologics are made from living organisms such as proteins and DNA.
Biologics are approved under the Public Health Service Act, through a process that is different from the FDA approval process for small-molecule, synthetically produced drugs. The FDA contends it is not authorized to approve generic versions of biologic medicines.
“These bills attempt to establish a framework governing the approval of generic biologics,” says Steve Sklar, a member of LVM’s Chicago office. “That doesn’t mean they will go through as is. In fact, it will probably take years to sort it out, because the landscape is more complicated for biologics.”
One point of contention is that the bills would establish two categories of generic biologics: comparable and interchangeable. In simple terms, “comparable” products have no clinically meaningful difference in safety or effectiveness as compared to the original biologic drugs. “Interchangeable” refers to those products that have the same clinical effect in patients as their brand-name counterparts.
“Those definitions would impact the strategies innovators used to protect their products, and the ways in which generic companies would challenge the protections,” says Bruce Gagala, a member of LVM’s Chicago office. “Brand companies are also concerned about data exclusivity, because these bills don’t provide for it.”
Under the Hatch-Waxman Act, pharmaceutical companies have five years of data exclusivity for developing new molecules. Moreover, the proposed legislation does not provide for a 30-month stay of approval of the abbreviated application in the event of a lawsuit for patent infringement.
On the generics side, the proposed legislation would grant 180-day exclusivity only to the manufacturer of the first “interchangeable” generic biologic approved by the FDA, rather than to the manufacturer who first filed an Abbreviated New Drug Application.
“The science for generic biologics is typically difficult, so the content of abbreviated applications will vary widely from product to product,” says Sklar. “Maybe over time some standard methodologies will evolve, but not initially. No matter what develops, though, at some point there will be patent litigation.”
Given that biologic drug products are often covered by dozens of patents, such litigation will be complex.
Courts’ uncertainty still clouds keyword guidelines
There is no question that the Internet is a powerful commercial tool, but there are many questions concerning the use of this tool. Among them are the legality of purchasing third-party trademarks as keywords, or search terms, and including these trademarks in the titles of search results. Questions also arise as to when to object to such practices.
Only a few courts have addressed these questions, and they have reached different conclusions. They have, however, set forth two factors a trademark owner must show to recover for trademark infringement based on keyword purchasing and use of a trademark in search titles.
“Generally speaking, in order to claim trademark infringement, trademark owners must first show that using a trademark as a keyword amounts to a ‘use in commerce,’ and second, that such use is likely to confuse consumers,” says Mark Liss, a member of LVM’s Chicago office. “Unfortunately, the courts are split on both issues.”
Liss and Caroline Stevens, an associate in LVM’s Chicago office, cite two recent cases as examples.
In Merck v. MSD Technology, the plaintiff drug company owned the ZOCOR trademark and brought trademark infringement claims against various Canadian entities that purchased ZOCOR as a keyword from Yahoo! and Google and linked the keyword to their sponsored advertisements. The Southern District of New York found that purchasing a trademark as a keyword did not amount to use of the mark in commerce.
The facts in another case, Edina Realty, Inc. v. The MLSonline.com, were analogous to the facts in the Merck case. The plaintiff owned the EDINA REALTY trademark and brought trademark infringement claims against the defendant, a direct competitor, who purchased EDINA REALTY as a keyword from Google and Yahoo! However, in the Edina Realty case, the District of Minnesota found that keyword purchasing amounted to use of the mark in commerce.
Although the courts are split on certain issues, their decisions are instructive in some ways.
“This area of the law remains unsettled,” says Stevens. “But based on court decisions, we have been able to develop general guidelines for purchasing keywords, drafting titles for search results, and objecting to third-party use of our clients’ trademarks.”
Recognizing that the law remains in flux, and no doubt hoping to avoid being named in further litigation themselves, Google and Yahoo! have instituted processes around keyword purchases.
Yahoo! allows owners to file complaints regarding potentially unlawful uses of trademarks as keywords or as part of the title of search results. Google allows trademark owners to submit lists of companies authorized to use their trademarks as keywords, and to submit complaints regarding use of trademarks as part of search result titles.
There are limits, however, on the protection search engines provide. For example, while State Farm might be able to restrict use of the “State Farm” trademark as a keyword, the company is unlikely to be able to restrict purchase of “state” or “farm” as keywords. If an insurance company purchases the keyword “state” from Google, and an Internet user searches Google for “State Farm,” it is likely that the insurance company’s advertisements will be part of the search results. Further, search engines are not willing to restrict use of marks that are descriptive terms or common surnames, even if a company owns trademark rights in such marks.
Until this area of law is settled, companies purchasing trademarks as keywords, using trademarks in search results, or objecting to use of their trademarks by third parties should proceed cautiously. Experienced trademark attorneys can offer general guidelines for developing corporate policies governing these practices.
Leydig announces
Leydig, Voit & Mayer is pleased to announce that the following attorney has become associated with the firm in the Chicago office.
Boris Umansky received a B.A. in political science and French from Indiana University in 1997 and a J.D. from Indiana University School of Law, Indianapolis, in 2000. Boris brings to the firm considerable experience in trademark law and practice.
